Let S = $40, = 0.30, r = 0.08, T = 1, and = 0.
Question:
a. What is the price of an exchange call with S as the underlying asset and Q as the strike price?
b. Now suppose σQ = 0.40. What is the price of the exchange call?
c. Explain your answers to (a) and (b).
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a Var ln S Q 03 2 03 2 2 03 03 0 and the option is worthless it ...View the full answer
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